The Tipping Economy

In this, my 50th year on the planet, I’m officially becoming a cranky old man.

As I sat in the Atlanta airport recently on a layover, I decided to grab a bite at Jersey Mike’s Sub Shop. When I swiped my card, the first screen asked if I’d like to add a tip to the total.

A tip? For what?

The young men and women behind the sneeze-guard glass were pleasant, but as far as I could tell they’d done nothing more than perform the service for which they were paid.

I ordered a sandwich. They made it. That was it.

The more I thought about it, I couldn’t think of a way that they might ever earn a tip. The goal of the place is to make sandwiches quickly and accurately. Making that happen is their job.

How could they go above and beyond? Maybe if I choked while eating and one of them leapt over the counter to perform the Heimlich maneuver, then I’d consider tipping (I’m not that cranky). But that’s not exactly the normal course of business.

This led me to a few other thoughts, and this writing.

Why are there tip jars at Starbucks? Don’t they get paid? And why are tips a percentage of the bill? Does it take more effort to pour a $ 200 bottle of wine than a $ 40 bottle? Why should I tip $ 30 on the first one, but only $ 6 on the second? Better yet, why am I tipping on that at all?

I recognize that many restaurants and bars pay employees a tipping wage. This includes a complicated formula for ensuring that employees make at least the minimum wage.

But there are thousands of other service jobs where tipping is becoming common. I don’t know why this is.

Are their employers a bunch of Scrooges who don’t pay enough and it’s up to generous-hearted patrons to make up the difference? Are we paying so that we get some level of service that other people won’t get?

As far as I can tell (and social experiments back this up), we tip because… everyone else does.

Bellmen, doormen, valets, the barista at Starbucks and the guy in the moving crew all are paid to do their jobs, and yet we typically feel compelled to supplement their income simply because other people do.

And this is completely on us as Americans. Even though the practice can be traced to Continental Europe in the 1800s, by and large other societies have phased it out over time.

But here we are, nudged by society – and the workers themselves – to add on a gratuity that feels more like an obligation.

At some level, I’d love to do away with the entire practice, and apparently some people agree.

Several restauranteurs in New York are experimenting with tip-free dining, although I think they are missing the point. The owner of Fedora, a trendy West Village spot, and several others did away with tips. But they also raised their prices 20%.

The idea was to keep server income the same. The restauranteurs were surprised when patrons reacted by ordering less expensive items, keeping their bills in line with their previous bills, before the tip was added.

It comes down to, “Who keeps the money?”

I don’t think the idea is that we should save diners and Starbucks drinkers the hassle of doing math. Instead, we should rethink the notion of paying people on a variable scale for a known amount of work (back to the two bottles of wine for different prices, or two different meals).

I wouldn’t pay people that way in my business, so why would I expect, and encourage, my customers to pay for things that way?

Whatever my cranky-old-man thoughts are on the subject, as a nation we’d better figure this one out.

We have the largest generation retiring en masse, modestly rising incomes, and a lot of new jobs created in the hospitality sector.

We’re quickly morphing into a nation of service workers looking to retirees for a tip. In a sense, it’s income redistribution through social protocol, instead of payment for services rendered.

P.S. Whether you tip big or not, your retirement dollars could be at stake in this tipping economy. Make sure to check out Dent Research’s 401K Advisor. Charles Sizemore just last week published our first quarter report, looking at a brave new world for your portfolio in 2017.

Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets.
Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s.
He’s a regular guest on several radio programs and is featured on television where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He too is a regular guest on Fox Business’s “America’s Nightly Scorecard.”
Rodney’s brand new book, Irrational Economics (2014), explains the forces that you cannot see but that really drive the economy and markets and can cause your wealth to rise or fall. To survive and prosper, you need the new money rules of the 21st century, which he outlines in this book.
He holds degrees from Georgetown University and Southern Methodist University.